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P9-2

This text discusses various financial transactions and their effects on the balance sheet, including purchases, payments, borrowing, rental income, deposits, and wages. It also highlights changes in the current ratio and cash flow from operating activities.

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P9-2

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  1. P9-2 Presented by: Leo Ashley David Sungtae Taiyuan

  2. Jan. 8 Purchased merchandise for resale on account at an invoice cost of $25,000; assume a periodic inventory system. • Journal Entry: Purchases (+A) $25,000 Account Payable (+L) $25,000 • Adjusted Entry for December 31, 2006: N/A, the debt is paid on Jan.17 • Current ratio is decreased • Cash flow from operating activities is no effect

  3. Jan. 17 Paid January 8th invoice • Journal Entry: Account Payable (-L) $25,000 Cash (–A) $25,000 • Adjusted Entry for December 31, 2006: N/A • Current ratio is increased • Cash flow from operating activities will decrease

  4. Apr. 1 Borrowed $40,000 from National Bank for general use; Execute a 12-Month, 12 Percent interest bearing not payable • Journal Entry: Cash (+A) $40,000 Note Payable (+L) $40,000 • Adjusted Entry for December 31, 2006: Interest expense (+E, -SE) $3,600 Interest payable (+L) $3,600 • Current ratio is decreased • Cash flow from operating activities is no effect

  5. June 3 Purchased Merchandise for resale on account at an invoice cost of $18,000 • Journal Entry: Inventory (+A) $18,000 Account Payable (+L) $18,000 • Adjusted Entry for December 31, 2006: N/A, the debt is paid on July 5 • Current ratio is decreased • Cash flow from operating activities is no effect

  6. July 5 Paid June 3 invoice • Journal Entry: Account Payable (-L) $18,000 Cash (-A) $18,000 • Adjusted Entry for December 31, 2006: N/A • Current ratio is increased • Cash flow from operating activities is decreased

  7. Aug. 1 Rented a small office in a building owned by the company and collected six months’ rent in advance amounting to $5,100. (Record the collection in a way that will not require an adjusting entry at year-end.) • Journal Entry: Cash (+A) $5,100 Unearned revenue (+L) $ 850 Rent revenue (+R, +SE) $4,250 • Adjusted Entry for December 31, 2006: N/A, since we assumed that five months’ revenue has been earned, we don’t need to adjust entry. • Current ratio is increased • Cash flow from operating activities is increased

  8. Dec. 20 Received a $500 deposit from a customer as a guarantee to return a large trailer “borrowed” for 30 days. • Journal Entry: Cash (+A) $500 Deposit(+L) $500 • Adjusted Entry for December 31, 2006: N/A, $500 has to be returned 30 days from Dec. 20; therefore, there is no need for adjusting entry. • Current ratio is decreased • Cash flow from operating activities is increased

  9. Dec 31 Determined Wages of $10,000 earned but not yet paid on December 31 ( disregard payroll taxes) • Journal Entry: Wage expense (+E, -SE) $10,000 Wagepayable (+L) $10,000 • Adjusted Entry for December 31, 2006: N/A, same as above • Current ratio is decreased • Cash flow from operating activities is no effect

  10. Balance sheet at December 31, 2006 Liabilities: Wages payable (Dec.31) $10,000 Return on deposit (Dec.20) $ 500 Unearned revenue (Aug.1) $ 850 Note payable (Apr.1) $40,000 Interest payable (Apr.1) $ 3,600 ----------------------------------------------------- Total $54,950

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